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Investment Dictionary


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Passive Investment

 

Passive investment (management) is an investment style when investors skips the steps of securities picking and market timing and invests mainly in index funds that have the lowest expenses. 

 

Passive investment got popular in last decades when a lot of researches came up and showed that very few investment managers succeed really beat the market and most the actively managed fund results are eroded by investment management fees and other trading expenses. The other reason that added popularity for passive investment was ETFs that allowed for investors chose passive investment even for small investors at low costs.

 

Passive investment management may be good investment strategy, however, if passive investment gets too much popular then main indexes may get overvalued and market may become not efficient enough. That may lower the attractiveness of passive investments. 

 

Sometimes passive investment is promoted too much, because the essence is not about passiveness or activeness but about low costs. If investments are managed well at low fees and long term approach is used, then passive investment would not have much of advantages against active investment management.

 

 






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